How Canada can defend against Helms-Burton

In 1962, John F. Kennedy called his press secretary, Pierre Salinger, into the Oval Office. Salinger carried in 1,200 Cuban cigars he had procured for the president. Kennedy thanked him, pulled out a pen, and signed a piece of paper ordering the trade embargo against Cuba.

In the half-century since then, Washington has been locked in a bitter push-pull with the Communist regime, while the rest of the world wearily looks on.

Generally, America’s anxious allies (who have not signed onto the trade embargo) have been comforted in knowing that U.S. efforts to punish the Cuban regime have been tempered by a desire to maintain good economic relations with its partners.

That is no longer the case. On April 17, the Trump White House announced that the U.S. government would reactivate TItle III of the Helms-Burton Act, which would allow American citizens to file lawsuits in U.S. courts against anyone trafficking in property confiscated by the Cuban regime. The provisions become effective on May 2.

Helms-Burton was first passed and signed into law in 1996, but its Title III has been suspended for most of the years since then.

As Stephen Marcus reported for CBA National back in 1996: “The drafters of the Act, fully aware that foreign investors dislike risks that cannot be readily addressed, deliberately created uncertainty about the scope of potential liability under the Act. The Act is riddled with broad language, undefined terms, and ambiguity in the hope that investors will steer clear of Cuba to avoid the risk of litigation in the United States.”

Marcus now runs a private practice in Washington, D.C. More than two decades later, he says, nothing has changed “the broad sweep of the statute and its potential for U.S. courts to impose enormous damage awards on Canadian companies that do business in Cuba and the U.S.” And it’s no small number. Marcus points to a recent State Department briefing which says as many as 200,000 claims could be filed under Title III.

Section IV of the Act, meanwhile, allows for the U.S. government to deny entry to any foreign citizen caught “trafficking” in specific Cuban property. When the law first came into force, Washington was serious about enforcement. A Toronto-based mining company with significant investments in Cuba was the first to be targeted after the State Department banned the company’s director and officers from entering the U.S.

But extraterritorial embargo-policing didn’t sit well with U.S. allies. The European Union launched a complaint at the World Trade Organization, and before long Washington backed down. Then-President Bill Clinton suspended TItle III, and his successors have continued that tradition, including Donald Trump – until now.

Back in the 1990s, Ottawa tried to mitigate risks for its nationals by expanding the scope of the Foreign Extraterritorial Measures Act (FEMA).  FEMA allows the Canadian government to issue blocking orders to prevent the enforcement of specific foreign laws, making it unlawful to comply with certain court orders.

The blocking orders ensure that when the American plaintiffs come to collect Canadian assets, Canadian courts must refuse to comply — and can even stick the plaintiffs with legal damages, collectable in Canada.

“This a game of tug-of-war. As you’re pulling on the rope, each party gives a little, takes a little, but you’re hoping to end in a stalemate,” says Cyndee Todgham Cherniak, who practises trade and international law at LexSage.

Even so, the risks for Canadians doing business in Cuba are enormous.

“If there is a claim that’s successful, will the U.S. courts allow assets in the US to be seized?” Todgham Cherniak says. “Will the principals and shareholders of that business be arrested if they go down to Disneyland with their kids? Will they be stopped at the Canadian border and prevented from entering the United States? Will they have their NEXUS cancelled? Will they have their visa cancelled? More importantly, will they be put on some blacklist so that they are detained and imprisoned in the United States until they pay off the judgment?”

And the winnings promise to be substantial. As such, many lawyers are set to take these claims on speculation. What’s more, says Marcus, “U.S. lawyers have had 23 years to analyze these issues so, if they file litigation, which I fully expect, some of the lawsuits will likely succeed.”

It’s why Ottawa needs to step its game up, says Todgham Cherniak. The key will be to “disincentivize” plaintiffs in America. “Could the Canadian government say that any U.S. person that brings a claim under Title III of Helms-Burton cannot bid on Canadian contracts?” Todgham Cherniak offers.

A solution will require some ingenuity because this time nobody should have any illusions that this trade spat could get resolved through a complaint process to the WTO.

“The WTO is so broken right now,” Todgham Cherniak says, particularly given the Trump administration’s antagonism to the organization’s trade tribunal. It seems unlikely Trump will follow Clinton’s lead and suspend Title III.

Mark Warner, principal counsel at MAAW Law in Toronto, notes that the Trudeau government “has taken an aggressive approach to dispute settlement.” To that end, a WTO claim is possible, though it would move very slowly. There could also be a claim under NAFTA Chapter 20 — “although there are technical problems with going that route that I am not sure are fully resolved in USMCA,” he says.

A direct challenge in the American courts may be a more direct route, Warner says. “But I would expect appeals and the current SCOTUS would probably be more sympathetic to the claimants.”

The best defence, at the end of the day, might just be good defence.

As Marcus wrote in 1996, companies "may wish to consider spinning off their Cuban investments to a separate company that does not operate in the United States.”

The Canadian mining company whose president was barred from entering the U.S. in 1996 still carries on business in Cuba, “but my understanding is that they have organized their operations since the 1990s to mitigate Title III risks,” Warner says. “And it is hard to imagine any Canadian investor in Cuba who has not already done the same.”

Still, as ineffective as Helms-Burton may prove to be in stopping Canadian investment in Cuba, it will not be President Trump’s final move, says Todgham Cherniak.

“I think that, with Trump, any form of economic warfare that he can engage in — to disadvantage corporations in a foreign jurisdiction —  he will find a way to do it.”